Economists examine their own portfolios

A man walks by an electronic stock board of a securities firm in Tokyo Thursday, Aug. 18, 2011. Japan's benchmark Nikkei 225 fell 37.74 points, or 0.4 percent to 9,019.52 in the morning after the finance ministry said exports fell 3.3 percent from a year earlier to 5.78 trillion yen ($75.6 billion). The downturn was largely due to the strengthening yen and the ongoing impact of the March 11 earthquake and tsunami. (AP Photo/Koji Sasahara)
— AP

A man walks by an electronic stock board of a securities firm in Tokyo Thursday, Aug. 18, 2011. Japan's benchmark Nikkei 225 fell 37.74 points, or 0.4 percent to 9,019.52 in the morning after the finance ministry said exports fell 3.3 percent from a year earlier to 5.78 trillion yen ($75.6 billion). The downturn was largely due to the strengthening yen and the ongoing impact of the March 11 earthquake and tsunami. (AP Photo/Koji Sasahara)
/ AP

The question: With the stock market in such turmoil, is your personal investment portfolio worth more today than it was on Jan. 1? What advice would you give the rest of us?

Parts of my portfolio are worth more today. The smartest move I have made in the last three years was to convert a good portion of my investment portfolio to cash—although the returns are increasingly minuscule, they’re positive and have provided me with an opportunity to take advantage of falling prices and other sales opportunities. Three years ago I was spending a lot of time minimizing losses, not maximizing gains. The other part of my portfolio that is working well is the high yield corporate bonds I bought about three years ago. I have no advice to offer others, just a wish, good luck.

Yes
29% (10)

No
71% (25)

It is surprisingly still a little higher than it was at the beginning of the year, although that may change tomorrow. Given the degradation of the dollar and downgraded U.S. credit rating, investment in precious metals and other inflation hedges seems to be the way to go, although those investments may already be highly speculated. Inasmuch as the federal government is unable or unwilling to significantly reduce deficit spending, and continues to borrow for unproductive purposes, creditors will start reducing lending and be unwilling to further loan without significantly increasing interest rates. Sharply rising inflation is the inevitable outcome.

But that is due to regular monthly investments to my retirement plans and having some assets in bonds, which have done well. I'm a long-term investor, so I don't worry much about the daily fluctuations of the stock market. When investors try to time the market, they sometimes get caught up in the emotion of the market swings, selling when the prices are down and buying when they are soaring. Some say the buy-and-hold strategy doesn't work anymore, and it may not be for everyone. But if people are constantly worried about the daily fluctuations of the market, it may not be a good place to put your money.

My retirement portfolio has 70 percent stocks, 15 percent inflation-protected Treasuries and 15 percent cash. The stocks are exactly where they were Jan 1, plus dividends in the bank. The TIPS [Treasury inflation-protected securities] are up, but I ignore that because I’m just holding them for the long-term income. I recommend thinking of stocks the same way. Instead of trying to guess whether the stock price will go up or down, ask yourself if the dividend stream you expect is worth the price you’re asked to pay. On that basis, I bought Darden Restaurants (DRI), which yields 3-1/2% with decent prospects for that dividend to grow, in the Aug. 8 panic. The price is up 5 percent from what I paid, though who knows whether that will last. If we see more declines in stock prices (either from fear or deteriorating economic conditions), I will put more of that cash into stocks.